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Simple IRA - reduce contributions?
Old 08-18-2013, 07:35 AM   #1
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Simple IRA - reduce contributions?

I'm debating whether or not to reduce my wife's Simple contributions. We currently put $12,000/year in, but only need to put $5.000 in to get the full match. We would take the deter-tax difference and invest them in our taxable account. Federal + State marginal tax rate is 34% and we will be over the Roth income limits next year.

The simple's investments stink, it's a 5% load and 2% expense ratios. I roll the balance out every 10k.

I keep running scenarios and I already have a 4 to 1 ratio of tax deferred to taxable accounts. Is just tough to retire at 40-42 if all the money is stuck in investments I can't tough until 59.
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Old 08-18-2013, 08:03 AM   #2
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Unless one is eligible for a pension at an early age, it is tough to ER before 591/2 without significant taxable account funds (unless you pay the 10% penalty or 72t). Since you are heavy in tax deferred at this point given the 5% load/2% ER, I would also contribute just enough to optimize the max and then go taxable accounts even though it may be suboptimal from an income tax perspective.

If someone didn't care about retiring before 60 then I think tax deferred would be the way to go given your high tax bracket even given the high load/expenses of the fund choices.
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Old 08-18-2013, 10:14 AM   #3
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Quote:
Originally Posted by chasesfish View Post
I'm debating whether or not to reduce my wife's Simple contributions. We currently put $12,000/year in, but only need to put $5.000 in to get the full match. We would take the deter-tax difference and invest them in our taxable account. Federal + State marginal tax rate is 34% and we will be over the Roth income limits next year.

The simple's investments stink, it's a 5% load and 2% expense ratios. I roll the balance out every 10k.

I keep running scenarios and I already have a 4 to 1 ratio of tax deferred to taxable accounts. Is just tough to retire at 40-42 if all the money is stuck in investments I can't tough until 59.
I'm also stuck in a similar "dilemma": I'm fortunate enough to have too high total taxable income to contribute to a ROTH IRA, but my tax bracket is high enough that I want to reduce my taxable income. However, my employer's 401k has fairly 'average' selections (average, that is, for a 401k, which means really crappy compared to Vanguard).

Do I pay higher taxes now by adding more to the taxable stash, or hold my nose and max my 401k?

I've opted for the latter, with the plan being that I probably wont' be working for them in 5-10 years (either because of ER or switching employers). At that time, I can roll over into a rollover IRA at Vanguard.

As far as not having enough taxable funds, you would need to do a 71t if you keep socking it away in your tax-deferred, if your taxable fund balance isn't high enough to sustain you until 60.

Since it sounds like you can roll out your contributions, I'd simply put your SIMPLE contributions into their MM fund. It avoids the 5% load, and is like a guaranteed 5% 'return'. SO you can consider it part of your bond allocation.
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Old 08-18-2013, 04:38 PM   #4
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That's interesting, I'll need to look at the MM fund to see if I can avoid the load.

I'm still maxing my 401k, which comes out to around $22k a year thanks to my employers generous match. I'm then putting another 15k each year into my employers deferred comp plan, which pays out in 180 payments after separation.
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Old 08-19-2013, 10:10 AM   #5
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One thing to check is safegaurds on deffered compensation. In my company those are not safe from corporate bankruptcy. This drove me to take deffered comp when available so as to get their match but not assume the risk.
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Old 08-19-2013, 05:02 PM   #6
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I think you're right. One mistake I made was to wind up with so much in deferred accounts that the RMDs will keep me in a higher tax bracket than I would like.
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